Qantas Forecasts Huge Fall in Full-Year Profit

Sydney. Embattled Australian flag carrier Qantas on Tuesday warned its full year profit could dive by up to 90 percent, with its international arm posting steep losses.

The airline said it expects underlying profit before tax — its preferred measure of financial performance — in the year to June 30 to be Aus$50-100 million, compared with Aus$552 million ($537 million) in the previous year.

In a statement to the stock market, the carrier blamed a deterioration in global operating conditions driven by the European economic crisis and its highest ever jet fuel bill.

A high Australian dollar and a bitter battle with unions over wages and conditions that saw chief executive Alan Joyce ground the entire fleet for 48 hours in October also cost the airline dearly.

Qantas shares plunged more than 15 percent and were trading at Aus$1.20 early in the session.

Qantas’s international business is expected to post a loss of more than Aus$450 million, more than double the loss of Aus$216 million in the last financial year.

In contrast, its far healthier domestic unit and low-cost offshoot Jetstar are expected to book a combined profit exceeding Aus$600 million.

“We remain focused on returning Qantas international to profitability in 2014 and for Qantas international and domestic combined to exceed their cost of capital on a sustainable basis within five years of August 2011,” said Joyce.

In a bid to halt the dramatic slide in profits, Joyce last month announced Qantas will split its international arm from its domestic operations.

Each of the two entities, currently combined as Qantas Airways, will run as separate businesses from July with their own chief executives and reporting of financial results.

The move came just days after Joyce said 500 jobs would be axed in its heavy maintenance and engineering operations.

“We have taken decisive action to mitigate losses in Qantas international by withdrawing from loss-making routes, reducing capital investment, and transforming Qantas engineering,” Joyce said Tuesday.

“The introduction of a new Qantas Group structure with dedicated CEOs for Qantas international and Qantas domestic will bring further rigour to our business.”

Joyce said more than Aus$300 million in annual benefits would flow from the changes being made.

He added that the carrier had a cash balance of more than Aus$3 billion and “remains in a strong funding position”.

“The group has funding in place for the majority of its 2012/13 aircraft deliveries and intends to fund the remainder of its future capital commitments from operating cashflow, cash reserves and available debt,” he said.